Supreme Court of India
VELLORE ELECTRIC CORPORATION LTD. & ANR.versusSTATE OF TAMIL NADU & ORS.
- Citation
- 1989 INSC 126
- Decided
- 13 April 1989
- Disposal
- Dismissed
- Bench
- R S PATHAK
Holding
The Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973, being a law of nationalisation intended to secure the Directive Principles under Articles 39(b) and (c), is protected by Article 31‑C and its provisions, including the compensation scheme, are constitutionally valid.
Summary
Three private electricity supply companies in Tamil Nadu, whose licences were granted under the Indian Electricity Act, 1910, were initially ordered to be acquired by the State under the 1954 Act, but the orders were stayed. The Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973 later nullified the earlier orders and made fresh acquisition orders. The companies challenged the 1973 Act and the orders on grounds of violation of Articles 14, 19(1)(f), 19(1)(g) and 31, and argued that the Act was not protected by Article 31‑C. The Supreme Court held that electricity generated and distributed by the companies is a "material resource of the community" under Art. 39(b), that the Act is a law of nationalisation aimed at implementing the Directive Principles and therefore falls within the protection of Art. 31‑C, and that its provisions on compensation, deductions, liability and procedural time‑limits are not arbitrary or unconstitutional. The order refusing the company's request to change the basis of compensation was set aside, directing the Government to reconsider it, and the writ petitions were otherwise dismissed.
Issues considered
- The nature of electricity generated and distributed by private undertakings as 'material resources of the community' under Article 39(b).
- Whether the Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Act, 1973, is a law giving effect to the Directive Principles and thus protected by Article 31‑C.
- Whether the Act's acquisition and compensation scheme violates Articles 14, 19(1)(f), 19(1)(g) and 31 of the Constitution.
- Whether the method of determining compensation (Basis A/B) and the deductions provided in the Act are arbitrary or unconstitutional.
- Whether the provision imposing liability on licensees to account for post‑vestment use is arbitrary.
- Whether the one‑month time limit for an accredited representative to choose the basis of compensation is unreasonable.
- Whether the State's order refusing the change of basis for compensation is valid.
Legislation cited
- Constitution of Indias. 14, s. 19(1)(f), s. 19(1)(g), s. 31, s. 31-C, s. 39(b), s. 39(c)
- Electricity Acts. 1910
- Electricity (Supply) Acts. 1948
- Madras Electricity Supply Undertakings (Acquisition) Acts. 1954
- Tamil Nadu Private Electricity Supply Undertakings (Acquisition) Acts. 1973
Subjects
NationalisationAcquisition of private undertakingsCompensationArticle 31-CDirective PrinciplesElectricity supplyConstitutional validityDiscriminationArbitrariness
Judgment
VELLORE ELECI'RIC CORPORATION LTD. & ANR. ,.!
A
v.
STAIB OF TAMIL NADU & ORS.
APRIL 13, 1989
[R.S. PATIIAK, CJ, SABYASACHI MUKHARJI, S.. B
NATARAJAN, M.N. VENKATACHALIAH, ANDS.
RANGANATIIAN, JJ.]
Constitution of India, 1950: Articles 14, 19, 31, 31-C, 39(b) and
39(c).
c
-} 'Material Resources of the Community'-Whether include electri-
cal energy generated and distributed by private undertakings.
Acquisition of undertakings-Compensation-Ju8ticiability of.
Procedure under Indian Electricity Act, 1910-Alternative D
COJICUrrent procedure envisaged under Tamil Nadu Private ElectriCity
Supply Undertakings (Acquisition) Act, 1973-Whether discriminatory
and unconstitutional.
Tamil Nadu Private Electricity Supply Undertakings (Acquisi- E
lion) Act, 1973: Sections: 2-6, JO(f) and 23.
Constitutional validity of-Object of the Act-Whether has nexus
to objects of Article 39(b) and (c) of the Constitution and therefore
protection of Articje 31-C.
F
Procedure for acquisition of undertakings initiated under Tamil
Nadu Electricity Supply Undertakings (Acquisition) Act, 1954-
Proceedings interrupted by Courts order-Fresh acquisition proceed-
ings under subsequent Act of 1974-Whether acquisition of 'choses-
in-action'.
G
Provision relating to liability of licensee to account to Government
in respect of possession of and any benefit derived from undertaking
after date of vesting-Whether arbitrary or unconstitutional.
'Compensation Amount'-Provision for exclusion of works paid H
475
476 SUPREME COURT REPORTS [1989] 2 S.C.R.
A for by the consumers-Whether unconstitutional.
Sums due to Government and Electricity Boa. ds from licensee--
Provision for deduction from compensation amount-Whether
unconstitutional.
B Acquisition-Property belonging to undertaking-Non-delivery
of-Loss sustained by Government-Computation of-Basis-Market
value-Whether unconstitutional.
Acquisition-"Accredited Representative"-Time granted to
signify choice as to basis of determination of amount-Whether
unreasonably short and arbitrary.
c
The petitioner companies viz., Vellore Electric Corporation Ltd., t
Kumbakonam Electric Supply Corporation Ltd. and Nagapatam
Electric Supply Corporation Ltd. were grantee of licences under the
Indian Electricity Act, 1910 by the Government of the then Presidency
D of Madras for supply of electrical-energy in their respective areas.
In exercise of its power under Section 4( 1) of the Madras Electri-
city Supply Undertakings (Acquisition) Act, 1954, the State Govern-
ment issued orders dated 12.1.1968 taking over the undertakings of the
Petitioner Companies viz., Kumbakonam Electricity Supply Company
-
E and Nagapatam Electric Supply Company declaring that their under-
takings shall vest in the Government with effect from the dates specified
in their respective orders.
These two petitioner companies filed writ petitions in the High
Court of Madras challenging the constitutional validity of the 1954 Act, 'i<--
F which were dismissed.
The Writ Appeals filed by them were also dismissed by a Division
Bench of the High Court. Thereafter appeals were filed in this Court, c~
which were however, later withdrawn.
G Though proceedings for the acquisition of the undertakings of
these two companies had been initiated under the 1954 Act but full
effectuation thereof had been interrupted by the interlocutory orders
made by the courts staying delivery of possession of the undertaking.
Subsequently the Tamil Nadu Private Electricity Supply Under-
H takings (Acquisition) Act, 1973 came into force which, inter alia, nul-
VELLORE ELECIRIC CORPN. v. STATE 477
lilied the effect of the action taken under the 1954 Act. On 30.10.1973 A
the _State Government issued fresh orders under Section 4(1) of 1973
Act declaring.that the undertakings of these two petitioner companies
shall vest in Government with effect from 1.12.1973.
. A similar order was passed by the State Government under Sec-
I
'
tion 4(1) of 1973 Act in respect oithe third petitioner company viz.
Vellore Electric Corporation Ltd., declaring that the undertaking of
B
1
•, this company shall vest in the Government with effect from 7.l.1974.
By an order dated 2.2.1978 the State Government also rejected the
application of the petitioner Vellore Electric Corporation seeking a
change in the basis for determination of amount from basis A to basis B
under the 1974 Act.
c
t Writ Petitions were filed in this Court under Article 32 of the
Constitution by the three affected companies challenging the constitu-
tional validity of the Tamil Nadu Private Electricity Supply Undertak-
ings (Acquisition) Act, 1973, as well as the orders made. under Section
4(1) on the ground that the 'Act', which envisages the acquisition of the D
Electric §upply Undertakings of petitioners as violative of Articles 14,
19(l)(f), 19(l)(g) and 31 of the Constitution.
~ . Dismissing the Writ Petitions,
HELD: 1. The electricity generated and distributed by the under- E
takings of the petitioner-companies constitute "material resources of
the community" for the purpose and within the meaning of Article
39(b).
1.1 The idea of distribution ,of the material resources of the com-
munity in Article:39(b) is not necessarily limited to the idea of what is F
taken over for distribution amongst the intended beneficiaries. That is
- one of the modes of "distribution". Nationalisation is other mode.
l.2 On an examination of the scheme of the impugned law the
condusion becomes inescapable that the legislative measure is one. of
~- . nationidisation: of the undertakings and the law is eligible for and G
entitled to the protection of Article 31-C. ·
l.3 The economic cost of social and economic reform is, perhaps,
amongst the most vexed problems of social and economic change and
constitute the core element in Nationalisation. The need for constitu-
ti_onal immunities for such legislative efforts at social and economic H '1
·t.,
478 SUPREME COURT REPORTS [1989] 2 S.C.R. ii*·
I
'j '
change recognise the otherwise unaffordable economic burden of '
.A
reforms. It is, therefore, not possible to divorce the economic considera-
tion or components from the scheme of the nationalisation with which
the former are inextricably integrated. The financial cost of a scheme of
nationalisation lies at its very heart and cannot be isolated. Both the
"
provisions relating to the vestitute of the undertakings in the State and
those per1aining to the quantification of the •Amount' are integral and i~
B Y·
inseparable parts of the integral scheme of nationalisation and do not
admit of being considered as distinct provisions independent of each
,.
other.
-- '
Tinsukia Electric Supply Co. Ltd.. v. State of Assam, [1989] (3)
S.C.C. 709; applied.
"'
c
1.4 In view of the fact that what was acquired in the instant case -r
were not merely "choses-in-action" but the undertakings themselves, it
is not necessary to go into the question whether a "choses-in-action" ).
can at all be acquired. I-
D
State of Madhya Pradesh v. Ranojirao Shinde & Anr., [1968] (3)
S.C.R. 489 and Madan Mohan Pathak v. Union of India & Ors., [1978]
(3) S.C.R. 334; referred to.
l
2. The subject matter of the grant in relation to distribution in
E the community of such material resources be it electricity, water, gas or .I
other essential amenities of life has a special nature. ..
New Orleans Gaslight Co. v. Louisiane Light & Heat Producing
i! & Mfg. Co., 115 U.S. 650; The Okara Electricity Supply Co. Ltd. v.
The State of Punjab, A.I.R. 1960 S.C. 284; referred to. ~
"
1~ F
2.1 The impugned law is within the legislative competence of the
State Legislature and such State law, with the Presidential assent, pre-
vails and is not over-borne by the Central law. The impugned State law,
,.---........ fi
by its 22nd section, expressly excludes the operation of any provisions of
the Electricity Act, 1910, in so far as such provision is inconsistent with "
G the provisions of the State Law. The Constitutional immunity afforded
to the State law prevents any challenge to it on grounds based on Article
t--
14or 19.
l.
3. There is nothing unreasonable about the provision whkh '
merely recognises the obligation of a licensee to account for its acts in
•H relation to a property which _has already vested in Govomment. There-
!
~
... ...
:,, -::
-
,,
•""'
°''·''
,c
'~)
• -!:-
VELLORE ELECTRIC CORPN. v. STATE 479
v fore Section 4 which pertains to the liability of the licensee to account to
A
Government in respect of possession of and any benefit derived from
the undertaking after the date of the vesting is not arbitrary and
unconstitutional.
4. The deduction envisaged by Section IO(d) from the amount
;
I payable towards and on account of arrears of electricity charges pay- B
-'"'(
able by the licensee to the Government or the Electricity Board as the
~ case may be for the supply of Electricity made by them to the licensee is
a legitimate item of deduction. It cannot be held to be arbitrary on the
apprehension that even a disputed and untenable claim io that behalf
becomes entitled to deduction. Section 13( 1)(e) makes such a dispute as
one of the arbitrable disputes and no deduction of a disputed claim can
be justified by the Government if the arbitrator-who is or has been a c
i- District Judge or a retired High Court Judge-holds that the deduction is
unjustified.
5. If a debt is deducted from the "amount", the debt is. satisfied
and is extinguished and no further debt remains outstanding to get itSelf D
attached to and becomes an encumbrance upon the substituted security
•
viz., the 'amouut'. Section 6(2) and Section IO(e). mu!lt be construed
harmoniously and in a reasonable manner. There is no scope for any
~ apprehension of a possible double recovery of the same debt. Therefore
the Act cannot be challenged on the ground of possible double recovery
t of the same debt under Section 6(2) and Section IO(e). E
- 6. The measure of the reimbursement for an asset withheld by the
licensee is the corresponding expenditure to be incurred by Govern-
ment for replacement which, in eminently conceivable cases, could be
the market value of the asset which is so withheld by the licensee and
-t which has to be replaced to keep tne undertaking functioning. There- F
fore Section IO(f) cannot be held to be arbitrary on the ground that it is
an instance of application of double standards because while recovery of
___.-. "market value" is sought to be made for non-delivery of the item
whereas in coml!_~ting the "amount" only the "book value" of such
"property" or "right" is taken.
('
·~ 7. It cannot be said that the accredited representative is, uml<r ·'
•
Section 8(1), given only a month's time from the date of bis appoint-
ment to signify the choice under Section 5 as to the basis of determina-
lion of the amount. Section 8(1) also provides 'or such further time as
may be granted by the Government'. If the exercise oL!his power is
.11rMtr..ry or capricious the licensee has remedies in Administrative H
,_
o<t<-' ~<~: -~f: .. .,r,I.
480 SUPREME COURT REPORTS [1989) 2 S.C.R.
A
Law. But the provision itself cannot be held to be bad or invalid on the
ground that time granted under the Section to signify choice under
. "
Section 5 is unreasonably short.
8. The order of the Government dated 2.2.1978 rejecting the
application of the Petitioner, Vellore Electric Corporation and refusing
B a change in the basis for determination of amount from basis A to basis
B is set aside and the Government is directed to consider the matter 'r
afresh.
'
ORIGINAL JURISDICTION: Writ Petition No .. 5 (N) of 1974.
(Under Article 32 of the Constitution of India).
-
c
Soli J. Sorabjee, Harish N Salve, A.K. Verma, K.J. John, -t"-
Srinivasamurthy, Ms. Naina Kapur, J.B. Dadachanji and Joel Pares
for the Petitioners.
D Shanti Bhushan and A. V. Rangam for the Respondents.
•
The Judgment of the Court was delivered by
VENKATACHALIAH, J. In these writ-petitions under Article -It
32 of the Constitution of India, three electric supply undertakings in
the State of Tamil Nadu, namely, Vellore Electric Corporation Ltd.,
-
E
Nagapatam Electric Supply Co. Ltd., and Kumbakonam Electric Sup-
ply Corporation Ltd., challenge the constitutional validity of the Tamil
Nadu Private Electricity Supply Undertakings (Acquisition) Act,
1973, ('Act' for short) on the ground that the 'Act', which envisages
the acquisition of the Electric Supply Undertakings of three petition-
F ers, as violative of Articles 14, 19(1)(f), 19(1)(g) and 31 of the
Constitution.
These writ-petitions were heard along with Writ Petition (Civil)
Nos. 457 and 458 of 1972, pertaining to the acquisition of Tinsukhia
Electric Supply Co. Ltd., and Dibrugarh Electric Supply Co. Ltd.,
---
G under the provisions of the Tinsukhia and Dibrugarh Electric Supply
Undertakings (Acquisition}Act, 1973, (Assam Act 1973) and the main
.....
contentions touching the constitutionality of such State laws, providing
for acquisition of private electricity undertakings-independently of
and without recourse to the option to purchase envisaged by the terms
of .licences and under the provisions Sections 6, 7 and 7A of the Elec-
H tricity Act 1910-are considered in the main judgment in the said WP
-;}
•
n
VELLORE ELECffiIC CORPN. v. STATE (VENKATACHALJAH, J.] 481 ·'II
;},_,
~/
:1 Nos. 457 & 458, separately rendered today.
A
2. The scheme and the broad features of The Tamil Nadu Pri-
vate Electricity Supply Undertakings (Acquisition) Act, 1973, which
received the assent of the President on 30th September, 1973, are that
the "Act" enables and provides for the acquisition of the private
--! undertakings engaged in th.e business of supplying electncity to the
public other than those belonging to and are under the control of the
B
•· State Electricity Board or the local authorities.
Section 2 of the Act declares that the "Act" is for giving effect to
the policy of the State towards securing of the Directive Principles,
specified in clauses (b) & ( c) of Article 39 of the Constitution of India.
Section 3 is the interpretation clause. Section 4 empowers the State
c
I Government to· declare, by order in writing, that any undertaking shall
vest in Government on the date specified in such order. The proviso to
Section 4 enables the Government to modify, by advancing or post-
poning, the date originally fixed in such order, or the modified date; or
to cancel such order. The proviso is, however, subject to a limitation D
which is in terms following:
"So, however, that no such order shall be modified or
~- cancelled after the undertaking has vested in the Govern-
ment but such cancellation shall not be deemed to prevent
the Government from taking any proceeding de novo in E
- respect of such undertaking under this Act."
The mode of promulgation and the incidence and consequence of
an order under sub-section (1) of Section 4, are envisaged in sub-
~ section (3) (4) & (5) of Sections 4 and 6 of the Act. Sub-sections (3),
(4) and (5) of Section 4 provide: F
"(3) Every order under sub-section (1) shall be-
.~--
(a) served on the licensee in the pres~Tibed manner;
and
-{ G
(b) published in such manner as the Government
may deem fit.
(4) On the vesting date the undertaking, to which the
order under sub-section (1) relates, shall, sub1ect to the
provisions of section 6, stand transferred to, and yest in~ H·
the Government.
~>I:' ~
482 SUPREME COURT REPORTS [1989] 2 S.C.R.
(5) Eyery licensee who, after the vesting date, was in
A
possession of, or deriving any benefit from the undertaking
vested in the Government under sub-section (1), shall be
liable to pay to the Government, for the period, after such
vesting, for which he was in such possession or deriving
such benefit, an amount as compensation for the use, occu-
B pation or enjoyment of that undertaking as the prescrib1>d
authority may fix in the prescribed manner. Such authority
shall take into consideration such factors as may be pres-
cribed."
We shall refer to Section 6 and its impact at an appropriate stage later. -
c Section 5 of the "Act" envisages the "amount" to be given to the
licensee on whom an order has been served under Section 4 and pro-
vides for its determination on two alternative basis-Basis (A) or Basis
(B)-as may be chosen by the licensee in the exercise of the option
given under Section 8. Section 7(1) contemplates and requires the
D appointment of an "Accredited-Agent" by the iicensee within three
months of service of the order under Section 4(1). Such accredited-
agent is required within one month of his appointment or with such
further time as may be granted by Government, signify the choice of
the Basis for the determination of the "Amount''. Section 8(2) says
that the choice of the Basis once intimated shall not be open to revi-
E sion except with the concurrence of the Government. 'Basis (A)' pro-
vides that the amount to be given shall be equivalent to 12 times of the
average net annual profits of the undertaking during a period of any
five Account-years at the option of the licensee within a period of
seven consecutive account-years immediately preceding the vesting
date. 'Basis (B)' contemplates a different mode of determination of
f the amount. It provides for payment of the aggregate value of the sums
specifieJ in clauses (i) to (ix) of sub-section (2) of Section 5. Section 10
speaks of the deduction that the Government is entitled to make for
the amount. They are specified at clauses (a) to (i) of Section 10.
Section 11 provides for the manner of payment of the "Amount''.
Section 13(1) renders any dispute "in respect of any of the matters in
G clauses (a) to (e) of Section 13(1)" arbitrable. The Arbitrator is
required, by Section 11(2), to be a District Judge or a person who is a
retired District Judge or a retired High Court Judge.
Chapter Ill of the Act, comprising Sections 14, 15, 16 and 17
contemplate and provide for the termination of agreements between
H the licensee on the one hand and the managing-agent or the managing-
VELLORE ELECTRIC CORPN.C,v. STATE IVENKATc»,..'\LJAH, J.] 483
~.. - ""'' .' '
·v director,. as the c~se may.be, on ihe other; the continuation under the A
Go~hmnent or·. the EleCiridty Board;· of services of persons on· the
staff of the"licensee taking an inventory of the as>ets and for informa-
tion in reg~rd to ihe documents maintained by the licensee and other
incidental matters. · .... '
, Sections 18 and 19 of Chapter IV deal with offences, penalities B
~ and procedure therefor. Chapter V, comprising Sections 20, 21, 22, 23
• . and 2.4, deals with miscellaneous matters. Two sections in Chapter V
are of particular relevance. Section 22(i), inter-alia, provides that no
- provisions of Electricity Act, 1910, or the Electricity Supply Act, 1948,
in so far as such provisions are inconsistent with any of the provisions
of the Act, shall have any effect. Section 23 refers to and deals with the
action initiated under the earlier State law viz., the Tamil Nadu c
Electric Supply Undertaking (Acquisition) Act, 1954, (Tami!Nadu
Act 29 of 1954) which is repealed by the 'Act'. Sub-section (1) of
Section 23 says that the said Act 29 of 1954 shall cease to apply to any
undertaking as defined in Section 3(12) of.the 'Act' which has "not.
vested with and taken possession of by the Government under the D
provisions of the 1954 Act" before t!;e commencement of the 1973
Act. Sub-section (2) and (3) of Section 23 envisage and provide for
situations where some action had been initiated by the 1954 Act but
such action had not culminated in the vesting of the undertaking and
possession thereof being taken-over by Government. Sub-section (2)
and (3) of Section 23 provide: · E
- "(2) Notwithstanding anything contained in \he 1954
Act, if, in pursuance of any order under sub-section (1) of
section 4 of the 1954 Act in respect of any undertaking as
defined in section 3 (12) of this Act, the Government have
not taken possession of such undertaking before the com- F
mencement of this Act that order shall lapse and be of no
effect and such undertaking shall not vest and shall be
deemed never to have vested in the Government under the
1954 Act and in respect of such undertaking it shall be
lawful for the Government to make an order under sub:.
section (1) of section 4 of this Act and the provisions of this G
Act shall'accordingly apply to such undertaking."
"(3) Notwithstanding anything contained in the 1954
Act, where, in respect of any undertaking as defined in
section 3( 12) of this Act, the Government have postponed
the date of vesting under the proviso to sub-section (1) of H
484 SUPREME COURT REPORTS [1989] 2 S.C.R.
A section 4 of the 1954 Act, that undertaking shall not vest, "-;
and shall be deemed never to have vested, in the Govern-
ment under the 1954 Act, notwithstanding the expiration of
"
a period of one year from the date originally fixed under
sub-section ( 1) of section 4 of the 1954 Act and in respect of
B such undertaking it shall be lawful for the Government to
make an order under sub-section (1) of section 4 of this
Act, and the provisions of this Act shall accordingly apply
to such undertaking." , ).-
~
The provisions of Section 23 acquire particular significance in the
case of the Kumbakonam Electric Supply Corporation Ltd. and
Nagapatam Electric Supply Co. Ltd., petitioners in W.P. 14 & 15 of
-
1974, as. indeed, proceedings for the acquisition of the undertakings of
these two .companies had been initiated under the 1954 Act but full f
effectuation thereof had been interrupted by the interlocutory orders
made by courts in proceedings in which these two companies had
D challenged the validity of the 1954 Act. Section 23 of the present 'Act'
seeks legislatively to set at naught such legal consequences as might
come to be considered as ensuing from the action taken under the
earlier 1954 A{:t. Some contentions urged in these cases centre round
what the petitioners refer to as some irreversible, vested rights accord-
ing to them under the earlier proceedings under the 1954 Act.
i-
E
3. The Vellore Electric Corporation Ltd., petitioner in WP No.
5(N) of 1974, was granted on 14.5.1929 by the Government of the
then-Presidency of Madras under the provisions of the Indian Elec-
tricity Act, 1910, ('1910 Act' for short), for the supply of electri-
cal-energy within the municipal limits of Vellore town which was later
-
extended to cover the adjacent area of Ranipet. Clause 12 of the
F j...
licence envisages the option to the Government to purchase the
licensee's undertaking on the expiry of 30 years from the commence-
ment of the licence or if licence is renewed thereafter on expiration of
every subsequent period of 20 years, during the continuance of the . -----
licence. At the relevant time when the order under Section 4(1) was
made, the remaining period of the licence was upto 14.5.1979. The
G
State Government in exercise of powers under Section 4(1) of the Act
made an order da~d 30.10.1973, served on the petitioner on 5.11.1973 ~·
fixing 1.12.1973 (which was later postponed to 7.1.1974) as the date of
vesting.
H 4. The facts in W.P. 14 of 1974 are the following:
· VELLORE ELECTRIC CORPN. v. STATE (VENKATACHALIAH, J.l 485
v The petitioner, the Kumbakonam Electric Supply Corporation
Ltd., a public limited company, then engaged in:the business of dis- A
trlbution and supply of electrical energy in the Taluks of Kumbakonam
and Papanasam and a portion of Than javur Taluk, in the District of
Thanjavur in· the State of Tamil Nadu, was granted a licence dated
15.4.1930 under the Indian Electricity Act, 1910, by the Government
I
of the then-Presidency of Madras. The initial period of the licence was B
--../ 20 years with a provision for renewal for further periods of 7 years
.., each. At the time the impugned order under Section 4(1) of the "Act"
was made, in relation ·to the Electricity Supply Undertaking of this
- company, the unexpired period of the licence was up to 15'.4.1978.
On 12.1.1968, the State Government in exercise of its power
under Section 4(1) of the Madras Electricity Supply Undertakings c
(Acquisition) Act, 1954, made an order for the taking-over of the
undertaking. The petitioner~company filed a writ-petition No. 704 of
1968 in the High Court of Madras, challenging the constitutional vali-
dity of the 1954 Act under which the order was made. That writ~
petition was dismissed on 31.7.1968. The Writ Appeal No. 338of1968, D
filed by the petitioner was also dismissed by the Division Bench. The
petitioner preferred, by special leave, an appeal to this Court in CA
119 of 1971. During the pendency of lhe proceedings before the High
Court and before this Court, petitioner had had the benefit of inter-
locutory orders, "staying delivery of possession of the undertaking".
However, the petitioner withdrew the appeal, according to it, on the E
- suggestion of the Government with ·a view to facilitating negotiations
for a settlement.
However, on 30.9.1973, the 'Act' in the present proceedings
came into force .. As noticed earlier, sub-section (2) and (3) of Section
23 of the 'Act' statutorily abrogates the effect, incidents and consequ- F
ences of all earlier proceedings taken under the 1954 Act, except in
cases where the vesting and the taking over of possession of the under-
taking had already"occtired before 30.9.1973. The. order under Section
4(1) of the 1973 Act in the case of the petitioner in WP 14 of 1974 was
made on 30; 10.1973 declaring 1..12.1973 as the date of the vesting.
G'
5. In WP No. 15 of 1974, the first petitioner, the Nagapatam
Electric Supply Co. Ltd., a public limited company, was the grantee of
a licence, dated 22.8.1933, under the Indian Electricity Act, 1910, by
the then-Government, Presidency of Madras; for the St\ ply of elec-
tricity in the areas specified in the grant. The initial period of the
licence was 20 years with a provision for renewal for further periods of H
486 SUPREME COURT REPORTS [1989] 2 S.C.R.
"}
A 7 years each. At the time the order under Section 4(1) impugned in the
writ-petition was made, the unexpired period of the licence was upto
I 22.8.1974. As in the case of Kumbakonam Electric Supply Corpora-
tion Ltd., so in the present case, Government in purported exercise of
powers under Section 4(1) of the earlier Act, viz., the Tamil Nadu
Electricity Supply Undertaking (Acquisition) Act, 1954, had made an
B
~ order on 12.1.1968 declaring that the undertaking of th'.· petitioner
~
shall vest in the Government with eff~ct from 15.7.1968. The peti-
tioner also challenged the constitutional validity of the 1954 Act in WP 1
No. 703 of 1968 in the High Court of Madras. The writ-petition was
dismissed in Madras High Court on 3.7.1968. The Writ Appeal 337 of
1968 preferred by the company before a Division Bench of the High
c Court, also came.to be dismissed. The Company preferred, by special
leave, CA No. 120 of 1971 before this Court. During the pendency of
y
the proceedings in the High Court and in the appeal before this Court,
[j there were interlocutory orders, staying delivery of possession of the
\~
undertaking. The appeal before this Court was however, withdrawn by
ii the company on 5.10.1972.
"'1'
D
Thereafter, 1973 Act came into force. As stated earlier, Scctii>n
23 of the 'Act' sought to nullify the effect of the action taken under the
1954 Act and a fresh order dated 30.10.1973 under Section 4(1) of 1973
Act came to be promulgated declaring that the undertaking of the f
petitioners would vest in Government with effect from 1. 12.1973.
f.
F
6. The three petitioner-companies assail the constitutional vali-
dity of the 'Act' as ;tlso the orders made under Section 4(1) in the
individual cases.
We have heard Sri Harish Salve, learned counsel for the peti- 1.-.
-
tioners in the three petitions and Shri Shanti Bhushan, learned Senior
Advocate for the State of Tamil Nadu and its authorities. The
challenge in the main, is to the constitutionality of the "Act", on the
J
basis of discrimination as between the procedures for take-over con-
tained in Section 6 and 7 of the Electricity Act, 1910, on the one hand
·-·
~ and the less advantageous, so far as licencee is concerned, contained in
G
!' the present 'Act'. However, some specific provisions are also cha!-
~
lenged as arbitary and unreasonable.
The contentions in support of the petitions urged at the hearing
• of these petitions-of which (b) & (c) are particular to WP Nos. 14 and
H \ 15 of 1974--may be noticed and formulated thus:
'"ll•ii$"1
-·'~'
', ~:S:-;
,,
VELLORE ELECTRIC CORPN. v. STATE [VENKATArnALIAH, J.J '487
"(a) that the legislative declaration in Section 2 of the 'Act' that 'A ''
;;
the legislation is for giving effect to the Directive Principles
of State Policy, specified in clauses (b) & ( c) of Article 39 of
the Constitution is invalid, it being merely a pretext to undo
and take away the petitioners' legitimate entitlement to the
payment of market-value as provided in the terms of the
licence read with Section 6 and 7 of Electricity Act, 1910, B
and, accordingly, the legislation does not attract the con-
stitutional validity from challenge under Article 31-C of the
Constitution; ·
(b) that, pursuant to the order made under Section 4(1) of the
1954 Act petitioners' undertakings stood vested in Govern- C
ment in the year 1968 and the concomitant right to receive
compensation as determinable under and in terms of the
1954 Act was came to be vested in the petitioners and got
crystalized into a 'chose-in-action' and that in the circums-
tances the impugned 'Act' which in effect and substance
acquires only these "choses-in-action", and not the under- D
takings as such which had already vest~.d under the 1954 Act;
'·'
(c} that Section 23(2) of the Impugned Act in so far .it seeks to
unodo the legal incidents and consequences of the order
made which provided a less disadvantageous standards for
-
the determination of the amount and the impugned orders E
which seeks to declare that the said undertakings vest again
in Government;-this time pursuant to order promulgating
under Section 4(1) of the impugned Act is violative of Article
14, 19(1)(g) and 31 (as the latter Articles then stood) being a
fraud on the power to acquire; ·
F·
(d) that ihe 'Act' is violative of Article 14. of the Constitution in.
I
·as much as it seeks to confer upon the Government an alterna- ·
tive and· discriminatory power of ·attaining the same end,
namely, the acquisition of petitioner5' undertakings on terms
more advantageous•to the Government and more disadvan-
tageous to the petitioners than those contained in the Elec- G
tricity Act 1910; . . . ·l,
'
that the direct effect of the impugned Act is to extinguish the
rights conferred upon the P.etitioners · iii carry on a la...:iu1 . ~tj
,.·A·;.~
business in terms 'of thesl.lbsisting licences in their favour and
is violative of Ariicie
~- -._~
19(1)(£) (as it then stood) and 19(J)(g):
H -;;·,:-·.•
,-
,.,,. , <r., ·~·,e~-- ·-· . ' "
488 SUPREME COURT REPORTS [1989] 2 S.C.R.
(e) that, at all events, Section 4(5) of the Act which renders a ·-.;
A
licencee, who after the vesting date was in possession of, or
deriving any benefit from, the. undertaking liable to pay to
Government compensation for the use occupation enjoy-
ment ofthe undertaking is arbitrary and violative of Articles
:f
!! 14and31;
B
ir (f) that clause 5(2)(i) of the Act which excludes from the com-
pensation of the 'Amount' works paid-for by the consumers 1
" is violative of Article 19{l){g) and Article 31;
'
(g) that Section 10(d) providing for deduction from the
'Amount' sums due to ~he Government or the Electricity
c Board by the licencee account of electricity supplied by
Government is arbitrary, as the provision empowers deduc-
tions of even sums bona fide disputed by the licencee of
debts.
D {h) that, while proviso to Section 6{e) enables debts, mortgages
and obligations of the licencee to attach to the "amount" to
be given under the Act. Section 10 again envisages the same
'amount' to be deducted from the 'amount', leading to a
possible double recovery of the same debt;
./.
E (i) that Section lO{f) providing for deduction of loss sustained by
Government by reason of any property belonging to the
'
undertaking not having been handed over at the \Ilarket-
value of the prnperty is unreasonable in as much a~ under
Basis B. Such Market-value is not but only the book-value is
the basis of determination of the amount; l
F
(j) that provisions of Section 8 which prescribes a period of one
~
month during which the accredited representative has to
exercise a right of auction is unreasonably short, rendering -·~
the procedure prescribed for the choice of the Basis of
. determination of the 'Amount unfair and arbitrary.'
G ,.
7. Re: Contentions (a), (b), & (c): 'r--
These contentions could be dealt with together. The principal
argument is that that there is no rational and direct nexus between the
objects of the Act and the Directive Principles of (1) State Policy
''
!
H adumorated in _clauses {b) & (c) of Article 39 in as much as the
,,
·~
VELLORE ELECTRIC CORPN. v. STATE [VENKATACHALIAH, J.)
489 "'
impugned Act was brought forth only to' avoid the consequences of the ·
terms of thelleences and the beneficient provisions of Section 6, 7,and
7-A of tlie' Electridty Act i910. If there is, thus, no protection tci' the
law of Artide 31-C; then its provisions would clearly vidlate Articles
14,19and31. .· · · ' · ''
.·\.
These contentions have to be examined with reference to the B · J
provisions of.the Constitution as they stood in 1973. Article 31-C was
·i
' introduced by Section 3 of the Constitution (25th ·Amendment) Act
1971 with effect from 20.4.1972. Article 31-C, before !he expansion of
its scope h.{the 42nd·Amendment, protected a law giving effect to the
Policy of the Sfate towaii:ls implementing the principles specified in
Clauses (h) &• (c) of Article 39. Article 31 itself had not then been
deleted but its scope had been considerably cut down and law provid- a c
l ing for acquisition of property ;even if it did-not have the protection of
Artide31-C, could not be'tested with reference to the adequacy of the
'amount' payable !pr th-.;'•kcquisitioit. The'!fjust;equivaleng or full- • ·~
indemnification pnnciple had been done away \Vitti and the question of , "• . ::.'":i
the adequacy of the amount was Tendered non-justiciable .•,;•· '-• -~ .D '. · ;•fli4
·~: stre'imo'u~{~ ~;;~ -:~-s~\alve ·t~e im~~;~d ·~
1
. was that Act;hadi '
,, .no rational and direct n"exus:wiih the objects of.clauses (b) & (c) of ;:s::.,.J'•,;;f
~;· \- ·Article . 39.as the coveft'bilt easily discernible pu"rpose'of the A'.ct waS:,.' , • " -~;,:Ji
!~ ' io;d~hy!to"i:he'iietitioners'•theif'ri@,ts llnder terms'b(the'iicence and. ""· ,;·
;J~, .
tii:'l;~ benefit~otSectionk6; 71& 7(A)'of'the'f'191iJ Act'." A somewhat." E . . .l
similiir•colitentioif was'. til'-ged in WP Nos.'457 &'458. of '1972. \vhere a ...
• "' .. s~01l1_ar!leW,slation 'of,'.ih'fState ?t'A,;ssam·w~s·~haile?ged>The conten~•. ·. ·• ~· .-~-'.' ~.'.1• .'_'.
• •·:. t10n _1s_ noticed m ouqudgment m those appeals thus:• , . ,... : '~ · 1
·.>~· ':ij r:_;"l'-_. -,~ .• -·!_~·'.::· ..~ .-:.,,f:~:·:. ·, -t!:";1·._~:_, _~f ~ " ..' :·'' :··- - '.,:_ ' -~-;:·;., '
~ , '~1.. , . the a·cquisiticiflYof, the tWO' Uridertiikings are Cha[-
. · · ... • Jenged bythe·petitionfr'on severaigroiinds;'the principal F'
' .. '· attack, howevei/beirig that the Ie'gislations, brought forth, .
. . as they were, in the wake of the private-negotiations and''
. 1;,:,the eiiercise• ot'the optfon fo purchas.e,:are not 'bo1lafiile,
('-{·.~. · ~~ bllt coils~~%~~ a·:me~~"~Olo'!ra~1e ~~~T~is·~,.:?! ~h.~~~~gislatiVe
· 'ii: '"~power and that;' at''all eyents the 'rea1"m1ectsfof. the two
.. leglslatfons haje no~iilir~C! arid "rea~nablf he~us~t? the G );.
. ,,,_,
''.' objects envisage in' clause (b}ofArticle 39 of tlie Constitu-
tion and that a careful and critical discernment of the con-
. '''text in which thel[egislat[on was brought'forth would lay
•1', ;.;·~-bare· before: the judicial eye that \Vhat was sought to be
'~ "
:;r;.~ :f';~ acquired was not "t'.illdertakings"Ofthe two ColliJ>anies but·
<' '' .• really the difference between the -:;'market-v_ah,ie" of the H
490 SUPREME COURT REPORTS [1989] 2 S.C.R.
undertakings which the State had agreed, under the private
A treaties,.. to pay and what, in any event, the State was
obliged ,.to pay under the provisions of Section 7A, as it
then stood on the one hand and the "Book-Value" of the
undertaking, which the _law seeks to substitute on the
other. If the protective umbrella of Article 31-C is, thus,
I B out of the way, the 'amount' payable under the impugned ~-
'! law, it is urged, would be illusory even.on the judicially
accepted tests applted to Article 31(2) as it then stood 1
"
...
" ..... Learned Counsel submitted that in order to
decide whether a Statute is within Article 31-C or not, the
c Court has to examine the nature and character of the legis-
lation and if upon such scrutiny it appears that there is no
nexus between the legislation and.the principles in Article
3~(b) the legislation must be held to fall outside the protec-
tion of Article 31-C .... " ,. ; ' ·
'D
The contention was not accepted. Repelling it, we observed in the
course of the judgm~nt in WP Nos. 457, & 458 of 1972: •
.. 'f
"The proposition of Sri Sorab)~e,dn principle, is, there-• I
~-
fore, une.xceptionable; but the question remains',whetlie~,
E . upon the application of the appropriate tests, the.impugned .
*' /'
'}. statute fails to measure-up to the.requirell)ents of th.e Con-
~ , stitution ~o earn.the protection under Article 31-C~''' ... " , •
• ' 11 '· i i d'. ' '.'" ;j",,
"It ,is not disputed that the electricity generated and
·; ;+1 -~,
·k
ii! distributed . by the undertakings of the petitioner-com-
F panies constitute "material resources of the community"
for the purpose and within the meaning of Article 39{b)."
l - .
f . " .... The idea of distribution Qf the material resources of
,the.community in Article 39(b) is not necessarily limit~d to
J .'·!,
, the idea of what is taken 'over for distribution amongst the
t-
,'.{ G intendb.d,beneficiaries. That.is one of the modes of "dis-
tribution". Nationalisation is another mode , . , ."
..
"On an examination of the scheme of the impugned
' law the conclusion becomes inescapable that the.legislative·
measure is one of nationalisation of the undertakings and
i. H the law is eligible for and entitled to the protection of
Article 31-C."
J
•i
' '
·''·'
,f . .
VELLORE ELECTRIC CORPN. v. STAIB [VENKATACHALIAH, J.) 491
v
Referring to the contention in that case that not every provision of a'•' A~
law can and need to eligible for the protection ofArticle 31-C and tliaf( "
accordingly, the provisions as to the quantification 'of the amount '
which were meant to achieve an pblique motive ani:I interdicting and
extinguishing rights to receive market-value under the 1910 Act would
not attrad the protection of Article 31-C,It'was held: -' ' ·
B'
". . . . We are ·afraid this contention proceeds. on an
impermissible dichotomy of the components integral to .the
idea of nationalisation. The economic cost of social and
- . economic. reform is, perhaps, amongst the' most ,.vexed
problems of social and econ.~ritic change and consiitiite tlie
core element in Nationalisation. The •need for constitu-
•··.·-~"r tional. im'iliunities for such legislative efforts at =social anil C
economic change. recognise· the · o'iii~rwise tun affordable '
''rt - econoffiicburdenofreforms .; ... '-~.'· ~-. _:)-.:i .•. .!'i~::;·-,.;-
,,... ,,.,,f'i-·~ .er·~·"'' ;~f· "~·· 1 - '\j ~~-'- :'H:~
'.'It is·, therefore, not possible to.divorce the economic·:·
~onsideraticins 'or compci}l'cqfs ..frorit,,the scheme of the ~ 0 •..
1•· · •·,• .nation_alisation,with .'whii:h the 1.fornier·· are. inexificably
· ·l · iniegrated.' The ffinah~ial cost of 3' scheme bf natibnisaticin'
,,'\;',. · rlies.at-its>ery heart and 23:~not be isolated.· Both the provi:
''ir-: ·· "' sions relating·to the vestitute ofc'the,underialdngs in the.,
State. and f!'.those pertaining io the quantification of ·the
. ,,,L,~• :'Am,sunt''.:aiedntegrar'aiidHnseparabte1-part~'of -the in-· E _,~;L
'JI. •'' ;/\ ., tegraJrscheine·of.llaticilialisation and do'not adinifof,being•· ;,.,-,,,,.
- . '"lti,: · co~idered'•as]i'ctistfnct·· pro;isions.. independent of·,~ach) "":1"1
,. t other." · -i - · '"'.'" i''.1 ·f.'t: ,.'>+,,-~~~--
-' ;,;;;,J,~':',~~:·:!:lf1:,:=·;:;~~~ ~i:~~>' ~' !\I',~.
.>'Article 31,C or not.If Article 31-C comes in/Articles 14, 19 and 31 go,../-, ;
~~~~.;~i%f~~=J~~;~i:~&J;~;ii:
:':- 'in>.Goveirim~'ni',\under;
' .,; 'doubt~'.true
. ' · ;
'!~
~ '
the J'954· Act. •It, is, ·no that G),.
. "T appropriate.orders
. ,,.. -
had
- -. '
been
.
h,ad~
'r
_under
. .
Secti6n 4(1) cif.11954 Act,
- .-___ '
Sri , ,". - ;.4
· ·;ti
,·~·
•" Salve:eonte.nds that.by·the ciperati,ori·of Iaw;.the.undertakings·of the '
twoJpetitio'llers, ,namely;'.Kumbakonam .Electric Supply Corporation cii ,,:,;'1
Ltd:· ;arid Nagapatani;,Electrlc·:Supply .Co. Ltd,,;'became 'vested dn • " .. ,,,,.
Government and that Section 23 of thep~esent Act virtualiy creates an j
artjficial'.divestitive)event and s~~ks'!tci ~e-inv!:.~r•{i.~gai.!.'.in pi'ivern- Hi it
,:41. "' . :'' -:' ~- ,_ ' :'~,. i.: .•~...,,:- :;,, -'~-:~
::t,J:·,~·(, ~·<1~"f;ti:~·:,~,i+~ ;.· ~r •: ~~~r'"<i~ ~~~:.'?~ ~,r-"'~' 9>~
492 SUPREME COURT REPORTS [1989] 2 S.C.R.
ment by the. device under the impugned Act with the sole object of
cutting down the quantum of the "amount". Sri Salve pointed out that
Section 5 of the 1954 Act envisaged three alternative Bases-Basis A,
Basis B, and Basis C-and_tha_tunder Basis A the amount equal to 20
times of the average net annual profit of the undertaking during a
period of five consecutive accounting year.; immediately preceding the
vesting date was payable. The number of years' purchase value is, Sri
Salve says, now reduced to 12 by the impugned Act. Shri Salve submits
that the amount payable under the 1973 Act is wholly illusory.
9. Shri Shanti Bhushan, learned Senior _coµnsel for the State,
submitted that if it is held that the legislation has the protection of
Article 31-C, barring the question of legislative competence all other
attacks based Oil Articles 14 and 19 and 31 cannot be countenanced. Sri
Shanti Bhushan submitted that all the contentions that the petitioners 'f
advance in support of their challenge to the validity of the Act rest, in
the ultimate analysis, on Articles 14, 19 and 31 which is precisely what
Article 31-C forbids.
So far as legislative competence is concerned, Shri Shanti Bhushan
submitted that it is;referable to Entry 42 of List III and with Presiden-
tial assent, the legislation prevails over any other law and, t[\erefore,
no question. of lack of legislative competence can be urged. Learned
counsel s_ubmitted ihat the contentions urged by the petitioners, in the
last analysis, wo_uld amount to this:.,that a legislation1which -offends
Articles 14. 19 and 3 t •would ~ot be a valid law at all and would,
therefore, not•be•eligible to.protection.Article of 31-C. If a law
satisfies the demand of Article 14, 19 and 31 then such a law, says
learned counsel, would not need the protection of Article 3_1-C at an'
and that such an· approach would render Article 3 l'C itse!Fmeaning-
less. •·
,,
In regard to the Contention (d), Sri. Shanti Bhushan would say
a
that it proceeds on factual fallacy. There cannot; it is urged a vesting·''
of the undertaking )n the Government und~r the 1954 Act urile!i!; the,'
concept of vesting ,has and is accompained by, the plen_itude ··of the•-
legal incidents a:nd ·consequences of such vesting for purj>oses of the· •
implementation of the 1954 Act. When. the delivery of possession of ·
the undertaking pursuant to the alleged vesting under the 19~4Act ha'd
been interdicted by:'the High Court and the Suprem-e Couri by ordiors
of stay,•at the instance of the petitioners, the exercise under the 1954
Act became infructuous and the present stance of the petitioners is
mer_ely an attempt tri exploit to their own advantage a situation emerg-
;~ - - - -
, '
VELLORE ELECTRIC CORPN. v. STATE (VENKATACHALIAH, J.) 493'
·V
ing from the· consequences of their own;. actions. That apart, the con-
tentfon (d), says counsel, is re.ally one based on.Articles 14, 19 and,31 ·~ .,
and the protection of Article 31-C to the Act would, in any event,
disallow any such attack.· i ·
10. On a consideration of the matter, we think that all the
; (
Contentions-::-( a). (b), (c) and (d)-are covered in one form or the other B
~ -by our pronouncement in WP Nos. 457 and 458 of 1972. We are also of
... the opinion that Sri Salve's contention that what was sought to be
acquired was mere "choses-in-action" is not sound. In any event, the
-,. 'decision of this Court in State of Madhya Pradesh v. Ranojirao Shinde
, & Anr., [1968] 3 SCR 489 relied upon by Shri Salve to contend that
choses-in-action could not be acquired would require. to be read with -"'c'
later pronouncement'in Madan Mohan Pathak v. Union of India. & ::·
Ors:, [1978] 3 SCR'334. It is not necessary,' however, to pronounce on
this poini as in our view what was acquired were not mere,ly choses-in-"
action.but the undertakings-themselves. : ·,·,
Ji • . .
.. Contentions (a).;'•(b) and (c),accordingly fail and a~e held and ,,p
answered~and againSt.ihe p~titione·rs. .--· .· : · ;. "- :,"
¥_~-, ~!'l~(~:.. l~'~·;::'"-,;'.lf,:"·;_ - .·_,_·,: "'. f'l ··J· . . ·,_,~!I:· -<-
i· •' ·11. R~.:· Cqnteniion (d):\r'. ,, ··r; "•
- ~- }f ~hi:~~u!Jll~sion of l~~~l~··;6u~~el on':~he -$o:~t is' that;. the: ::·~;)~
·;~ .· ,_ .. ilnpugned ,Ac(confers upon thetState·\GC\V'ernili~tit an altemali'\'e. ~
:,.~~'~,. -\~~. ;~prOcedure,-::~OnCurrently ·with :the· orie enVis'ag~d:;'iri Sec: 6 :al the r. .. -· · ..;·-·· ._·-~ri.--~-f~:.;~~~
- . Electricity. Act, i1910, for attaining the same end viz., the' acquisition oL, ... . . •
7
:i>
' :~~~l~~[~c;~~~:~n~~~i~~~!:J~~~~eif i:~~~:~;~ii~;~:·a~~~~jl~f~;: ~ :,,;:,;>!'!
, . - ,,.__~ . •. -· ,._.. . - , ,,~. "' ; • - ,;_~'"':H
j ta](e away the" property of the licensee. The option under St!c. Fis ·;.' ' '
· -''really sta!Utory and in its. essential .nature the power ih1ot distinguish- F~:,~./
.' able tr6m 1the, State's power to ~equire an inC!ividual's properiy wh_ich
,__ - • {- •_: - . - _. . ,. - ~,_ - ' •;1-< :.•(:-:'~ .,.,.
. ·' really.is and forms the basis of the impugned Act.:::" · ·
~- ~
~
;
·: .
- .
'
.
·-.:;;; }7-, "'.'
~
··:
- -
J""'
. . ·.:
-'' . •Jt appears. to us that there are:certain falla;ieS'basic to ,!1Je'iifgti-
; ' ·_·:t_-.,1
' ·-- ·::A'
. ~..
~~en~, The sp~cial nature of the .sub1~ct matte'; of~he gr~nt m'r<;,l..at!.'W _ .
to·d1stnbul!on"m the· commumty of such matenal-resources ~be<1t G,. ·; ·
'"'t·
l' . electricity; :.Vater,. gaf~r other _essential amenities of life-was ~~c~g-• ;' ';:.-:ii .
•.,~. · riisecf bf this Court.!rThe following observations· ohhe United >States · ~: '"1'-
Siiprem~ Court in Ne_w Orleans Gaslight Co: v. Louisiiine Light _&, •
HeatProdui:ing&Mfg. Co., 115U.S.650werereferredto: ·c.
. -- f
4:' ·: ,: ..
_·
i,:,..~
'.'.·:~·'.:..:-;>
- ' - ;, ••. -_2 -. l.
r,
.. "the manufacture and distributfrm of gas by· means of•:. H .<•::. 1
.),{:-
. ~-:· .·, . '~ ,~,e1:i:£:~'.1;:~ ~":,',,_'
494 SUPREME COURT REPORTS [1989] 2 S.C.R.
pipes, mains and conduits placed under legislative autho-
A
rity in the public ways of a municipal.ity, is not an ordinary
business in which everyone may engage as of common right
upon terms ~f equality; but is a franchise relating to
matters of which the public may assume control ..... "
B and said:
" .......... It thus appears that American Lawyers
describe the business of supplying energy as well as the
business of supplying water and gas as a franchise, and it ·
also appears that, in granting licence or sanction to a
person to engage in such business, a condition is usually
c imposed for the compulsory acquisition of the business
when the licence or sanction comes to an end". [See The
Okara .Electric Supply Co. Ltd. .v. The State of Punjab, AIR
1960 SC284]
D If the ,impugned law is within the legislative competence of the
State Legislature-as indeed it must be held to be-the State law, with.
the Presidential assent, prevails and i~.not over-borne by the Central ''
law .. The impugned State law, by its 22nd Section, express.ly exdudes
I
~·.·
the operation of any p~ovision of the Electricity Act, 1910, in so far a.s
such provision~ incbnsistent with the provisions of the State-Law. ' · ·
-l
E "
i~, The constitutional immunity afforded to the State.law prevenis :. '
any challenge to it on grounds based on Article 14 or 19.We have held
''*•·. '
that the State law.has such protection. The contentioin (d) has thus, no
foundation.It has to fail. · . · ·
*' F Re: Contention (e):
...
,•
12. "This pertains fo the liability of the license.e to account to
Government in respect of possession of and any benefit derived from
the undertaking after.the date of the vesting. This provision is assailed
as arbitrary and unconstitutional. There is nothing unreasonable about · ·
G . this provision which merely recognises the obligation of a licensee to ·'
account for its acts in relation to a property which has already vested in
Government. There is no substance in this contention either. ' .•
· 13. Re: Contention (f):
-. '
This contention arises in the context of Sec. 5(2)(i) of the Act. In
H
'""';.<"'
'-~,t -:~
',,j
.:{ J
~~1·
:t· -
. :· ;, .~ !; •
VELLORE ELECTRIC CORPN: v. STATE [VENKATACHALJAH, J.]
' -~·
495
I.(
computing the amount payable .under "Basis B" . the aggregate value of·
tb~ sums.· specified iri several clauses of 1 'Sec. 5(2) has to be-taken.. ·A
Se~. 5(2)(i) while requiring the,b'ook value of all •;completed-works in
beneficial use pertaining to the.undertaking and handed over.to the
"Government" to be taken, however, excludes therefrom works paid
•••• for by the consumers. The contention of the petitioners. is that the
J "works paid for by the consiimer" is.. also the propert:Y of the licensee B
-1 and cannot ;legitimately be excluded. A substantially similar conten-
-._ tio_n was urged a11d has b!!en considered and negatived at p_ara 29 of
our judgment in_,~P Nos. 457 and 458 of 1972. The reasons ~lated by
us in negativing the-content.ion in that c~se fully answer the present
•
point: Con,tention (f) is also _insubstantial. •"
. .?~ -
(g/ . c
-r "''·' '14.',Re: Contention ,(
.,u· ::- -,,:-'1 '.. ·. \·;'-~ •
,, ; , .• ,i., ,,:o;Section 1!Q(d) ,envisages,..:de?uction.from _the amount, payabl""
'fowaros.and -
on account of arrears
- . ···_· :·-: • ·: ""'.'".: ..
>S".;.-~---~
of electricity charges payable by the '":J - _-- _ .. ' """" '" - •
lice,I1seeto th_e, Goyernmento,r ,the, ~ectricity B<?ard a~ the _case may
b~~fqr,th". supplypf Electricity.made by ,th~m t_othe licensee: '.fhis_isa D .. ;,,
legiti.1nate ,item,: of .deduc5i<>,n·.::B11t; th~ poin!..ShricSalve. sought. to put :;
. across is.that,.even £!:, disputed1and,.untenable Claim in that .behalf• '"'
[,i(· ., b~co~~s. e11tt~l.e~1tq,dedilction,. :mer~· is ":~just!ficatio,n for, this ~ppre-
• p<
f'~1 h~11s1on. ~e~t!,?n l)(e m?k~~ s1;1.~h a dWP,1;1te ~?n~ otthe arb1tr'lbJe ' ! . 'i
~. ·' : ·. d1sp1;1tes !1.nd ito .• d<?duct15m>:of a disput~d .~.tail\!: can b.~justified liy ...•
lt-..ji~-':;.,: rq~~~e~f!!~~ft_-~f tti~.. ~fRUE.~\~~;;.w~~01'is'~r:,J1_aS q¢~e~:~ RiSt,~i,~:~-I~-dg: -~r a ,_ E
• (11'... ~e.~7,.d1 ~1?h Co!lrt J?dge"'.!hol~~:.f)!a\othefd:,~uctI()n 1s: 1~e1ust~f1ed;.; > i .•
• ~ t." , ,~Jet~~l~p~ (g) h~s n? s~bsta~cee,it~:r.J, . .,,.,, •... · '" ·: .. '\t ,,, r , ... ··~
;~:~,· '.'.'.'.--_-:.-~:fr --~1(·,i!.,~~ .,f ·
·fl-·.,__.. ·1: ,~;<t't· ''..ti.--~~~: .- :1 ·.;r~-·
"'· ':ft, r. • .. : .:~-~
";!' .. ''"··'··· · "15.,:'Re: Conten"tion..(h):: ·.,.'" .•. ,,. •.·· ·.,, ,:. '"'
~ .:~(.- ~-~;,,,:J:~J· ~i· '· '- -- ~· _~.-;_,,~ :··· :·1 ./i"
l . , 'i<:,The,gliey~nce S()!!gh_:t~~be,mad~ out~n:the matter i~ that ~bile . Ff't'
Se".tr,on 6(2).of the Act.has the effe<;t of vestmg all the:assets,spec1fied;, ..
· in Sec~ 6(2)(i)(o) in Gciv.emment free froin encumorances ,and the ·
.~~_proviso to Sec. 6(2) renders the amount ·payable to the'licensee as ·
"'' " ... s,~~stituteJ.,secJ!rity for tre. dejjts; m?rtga~~s~al)d _obligations _in sub- · ..
; . :· , S~\tUtIC>~ ,of. the \j!SSf ts· vestmg m.8ovemment;,however, •,;>ec. 10(e) ,
·::..~ :, render,;;.,CJ11e_species,sif.s~ch debt viz,: sums due. to theG<Jy.ernment o~,. G .•
'" . . the.:Electnc1ty Board, hable _to be deduc_te~. frgm. the amo!'nt. Shn
' , ts~tyio,contends that this would make. for a'double'recovery of.the same ,
•., . deb~; This,;\Ve are afraid, is a,wrong \Vay of looking at the,two.provi- · ...
\1'.. _ . 'sions: If.a.debt is deducted from the "amount",.the debt issatisfiecl ..
~~~ :is~'?~tinguish~d and. no;'.,~lther deb~ remain~ ·outstanding· t.,;,/iet_ i
1tse[f, attached to and• became an encumbrance. upoll' the substituted•~·". H•
*1.!:i}~~- ""'"' /;.- '":",,,<· ,- . .-: : - - . ~~- - .,.- . .·. :_~ :· --·:
.-,· ..': ;·;_:;:-~·~:·i~~;. ~' ;.
496 SUPREME COURT REPORTS [1989) 2 S.C.R.
security viz., the 'amount'. Sec. 6(2) and Sec. lO(e) must be construed
A
harmoniously and in a reasonable manner. There is no scope for· any_
apprehension of a: possible double recovery of the same debt. There is
no substance in contention (h).
16. Re: Contention (i):
B ~
The point of the matter is that sec. lO(f) entitles the deduction of ~
the market value of any "property" or "right" which vests in Govern-
ment and which is not delivered by the licensees to Government. The
grievance of the petitioner is that while recovery of "market value" is
sought to be made for non-delivery of the item, however, in computing
the "amount" only the "book value" of such "property" Or "right" is
c taken into account. This, it is contended, is an instance of application
of double standards and is, therefore, arbitrary. We see no substance
in this contention. •Tue measure of the reimbursement for an asset
,, withheld by the licensee is the corresponding expenditure to beiiii.cur{
red by Government for replacement which, in eminently conceivable'
D cases, could be the market value· of the asset which is so' withheld by · '
the licensee and which has to be replaced fo keep the undertaking
functioning. There is no substance in this contention either.
l. }I
·17. Re: Co'!.lention (j).: .-!
'·
14'
Shri Sa!Ve submitted that the·accredited rep~esentative 'is,··~ri?er •
,,
" ,_,,
if
:i " <,
.•
sec. 8(1), given only a .month's'tim~.from the date of his appointme'nt
to signify the choice under sectiori·5'as to oftlie basis of delerm\ri~tibri;': ·
of the amount. The time granted, it is said, is\mreasonably short. Th~.
-
'i.,' argument clearly o~erlooks the cla~se 'or ~heh rurther time as may be
• granted by the Government' occurring in Section 8(1). If the exercis'e L
of this power is arbitrary or capricious the lice.nsee has remedies in
'
,,
~-
'.~
F
Administrative Law: But the· provision itself cannot be held to be bad;.
There is no substance· in this contention either.
18. Certain other subsidiary contentio~'s were urged a.t the hear-''
-~, ing. All these matters have been elaborately cons_idered in· our.judg-
i_ ment in Writ Peto. Nos. 457 and 458 of 1972 arising out of the Assam • " -
G
'''.\. legislation. We have not foun~ any merit in them. '" ·' · ·."•
. 19. However, "there is one aspect which merits consideration.
Shri Salve submitteil thatthe petitioners in Writ Peto. No.: 5(N) of
1974, .who initially, on 16.1.1974, had opted for basis A had sought a·
H change to basis B by their application dated 4.10.1977. On 2:2.'1978, ..,
.
VELLORE ELECTRIC CORPN. v. STAIB [VENKATACHALIAH, J.] . '497 ·.jll
Government refused :to permit the change. Shri Salve submits that a. A
1
- -~:
serious and indeed, irreparable hardship has been occasioned to the
petitioners by this arbitrary refusal. In these writ petitions we have
dealt with questions of constitutionality leaving the questions of con-
struction of the provisions to the appropriate authorities. However,
having regard to the checkered history of the proceedings, it appears
to us that Shri Salve's submission deserves to be accepted. Accord- B
ingly, the. order of the Government dated 2.2.1978 refusing a change in
the basis for determinatiOn of the amount is set aside and the Govern-
ment is directed to consider and dispose of the application dated
4.10.1977 afresh within two months from today. We make it clear that
the Government shall not unreasonably withhold the permission for
the change. c
20. In the result, subject to the direction in para 19 supra relat-
ing to W.P. No. 5(N) of 1974, we find no substance in these writ
petitions which are dismissed. There will be no order as to costs.
T.N.A. Petitions dismissed. D ·.~
-
•; -
If··'
··•t<'~·.'
•'),
.~: .-
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Nationalisation"Sign in to search